Really great links - baptists, bootleggers and the Fed - derivatives - S&P total net return - prescient Krugman

Arnold Kling on Baseline Scenario - "Johnson and Kwak even depart from the usual progressive narrative in which the Federal Reserve was the creation of forward-thinking experts seeking to modernize the U.S. financial system. Instead, they tell more of a bootleggers and baptists story. p. 27:

Nelson Aldrich represented the viewpoint of the banking industry...Aldrich was the chair of the National Monetary Commission...which recommended the creation of a central banking system largely controlled by the private bankers themselves...What these bankers wanted was a bailout mechanism that would protect the financial system in the event of a speculative crash...They knew that a new central bank would need the political backing and financial support of the federal government, but at the same time they wanted to minimize government interference, oversight, or control.

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David Merkel - "There is no net hedging in the market. At the end of the day, the world is 100% net long with itself. Every asset is owned by someone, regardless of the synthetic exposures that are overlaid on the system. There are many people, particularly dumb politicians, who think that derivatives are magic. "

Mahalanobis - "While the S&P 500 returned an average of 9.5 % annually over the last 50 years, the comparable figure after accounting for trading and management costs, dividend and capital-gains taxes, and inflation was a mere 1.3 %"

From the archives of Paul Krugman (October 16, 2008) - prescience watch - "In other words, there’s not much Ben Bernanke can do for the economy. He can and should cut interest rates even more — but nobody expects this to do more than provide a slight economic boost."